Month: August 2016

Many establishment Republicans have come out in opposition to Trump. Many are publicly stating they will sit this election out, and in some cases, members of the elite are actively announcing they will support Hillary Clinton. In most cases, they are claiming Trump is not a true conservative.

This matters. The election’s outcome will be far reaching regardless of who wins, and the winner’s policies will greatly impact the marketplace and your money. Having a coherent belief system in what was once the conservative party is critical if the two-party system is to serve the country well. If the Republican Party splits, you are looking at possibly a one-party rule for years to come. So the question is – “Are Trump Supporters True Conservatives?” To answer this question, let’s compare the beliefs of the establishment Republicans and Trump supporters on some of the issues that matter:

I. What do Establishment Republicans Believe? Are They Conservative?

1. Immigration is a net positive. Establishment Republicans (so-called conservatives) do not want to build a wall, and prefer to find a solution for the illegals already here – their buzz word would be “comprehensive” immigration reform. While they are against sanctuary cities, and would deport criminals, they believe it is against America’s values to forcibly deport 11 million illegal aliens. Many voters believe they will again cave in to the pressure from Democrats and pass an amnesty bill, and eventually citizenship and voting rights, for illegal immigrants.

2. Entitlement reform necessary for deficit reduction.The establishment believes entitlements must be reformed in order to reduce the deficit. The first steps to reduce the deficit would be means testing social security and moving the Medicare eligibility age. Some still hold out hope to privatize the social security system. This is the current establishment conservative position.

3. Nation-building is important in our foreign policy.Most establishment Republicans (conservatives) supported and promoted the Iraq War as a necessary event to remake the Middle East. A functioning Arab/Muslim democracy in the middle of that part of the world would help us remake the entire region. As everyone knows, it did not work out that way. While the war was won by 2011 and the country was secured, the current Administration gave away the gains of that victory by withdrawing. Still, the establishment remains supportive of intervention and democracy promotion, despite the idea being discredited.

4. Free trade is an absolute.Following the economic theories of Adam Smith, David Ricardo, Ludwig von Mises and Friedrich Hayek all the way to modern economic thinkers such as Milton Friedman and Arthur Laffer, establishment conservatives are absolutists on free trade. The overall economic benefit, in the raw data, is unmistakable in that it shows economic growth flows from such policies. Although it rarely takes into account the impact in other aspects of society and culture, and whether other trading partners in the marketplace engage in the same philosophy.

Tax reform has many different ideas conservatives support, but all generally fall into the same position of lowering tax rates. So, now the big question – are Trump supporters the true conservatives?

II. “What do Trump Supporters Believe? Are They the True Conservatives?”

1. Immigration is out of control.Trump’s commitment to mass deportation was always a stretch; Trumpians in their guts understand this. But they do expect him to build a wall, enforce current deportation laws, remove all criminals, end sanctuary cities, and deny citizenship to those who came here illegally. For a Trump supporter, a border and sovereignty is what every nation in the world believes in having. What is more conservative than believing citizenship in America should have value and not be taken illegally? Trump won the primary, because he did not talk about E-Verify, path to legalization, or use the word “comprehensive.” What comes first for a Trump supporter is securing the border. In the age of terror, wage stagnation, and job scarcity, how can anyone think differently?

2. No entitlement reform … not yet.The so-called conservatives in the media are horrified the Republican base is not “really conservative.” The founding Bible of the conservative movement, National Review, has written repeatedly that the base has become a nationalist, populist movement, as opposed to conservative, as it relates to entitlement reform and deficit reduction. Trumpians cheer loudly when Trump says he is not going to touch social security. But is it that the base is not conservative, or are they conservative but smarter than all of the D.C. establishment? For the base, why should they give up social security and Medicare? They paid into it. The base position is not a one-dimensional internet headline of “for” or “against” something. Most would be more than willing to sacrifice to reduce debt – IF the D.C. establishment takes a cut first. 10% reduction is Congressional and Presidential staff, including 10% reductions in pay and term limits and eliminating certain departments. The base is saying, “We’re not sacrificing anything until the people who caused the mess sacrifices first.” That is the more conservative position – demanding accountability from the D.C. establishment FIRST!

3. No more nation-building.Ronald Reagan never talked about nation building. Reagan often spoke against the politicians not allowing the soldiers to win in Vietnam. Two of his greatest quotes on Vietnam were: “The true lesson of the Vietnam War is: certainty of purpose and ruthlessness of execution win wars,” and “It’s silly talking about how many years we will have to spend in the jungles of Vietnam when we could pave the whole country and put parking stripes on it and still be home by Christmas.” Having witnessed the “establishment” botch the last 16 years of foreign policy, is it not Conservative to want to stop trying to impose democracy abroad and take care of our vets here at home? Most want the military rebuilt, and to have the strongest military in the world, they just do not trust our current leadership in how they use the military.

4. Free trade should be fair trade.Many Trump supporters have been left behind by “free trade.” But is it really free trade, or is Trump right, and our leaders have been taken advantage of in global trade deals? Free trade and globalization are two different things, and often our leaders combine the two issues. We do not have free trade with China. The North American Free Trade Agreement (NAFTA) has benefited Mexico, but not necessarily workers, or the economy, of the U.S. It certainly has not helped our current immigration circumstance. Trump supporters are true conservatives in that they believe free trade must be fair, not a one-way street.

These issues matter. It appears from the evidence that the Republican party, the conservative party in the country, is not coming apart from the bottom, but many of the “establishment” conservatives are not really all that conservative in the first place. It is the “base” that is conservative, but do not want many changes made without the D.C. establishment reforming themselves first! It is an important distinction many in the media have not made.

Why does this matter to your money? The policies of the next President could be the most important in our lifetime. Some in the “establishment” are mischaracterizing what Trump stands for, and why Trump supporters are “conservatives” in the truest sense. When casting your vote this November, remember that Washington will greatly impact your retirement savings and the marketplace.

Contact us today to find out how you can protect your principal while earning a reasonable rate of return, and have a guaranteed income if you need it! 877-912-1919

The anemic U.S. GDP growth rate is still strong enough to be better than Europe. China’s “catch-up” growth rates have dramatically slowed over the last few years. Combined with accommodative monetary policy, you have what is supporting a U.S. stock market in its 7th year of expansion. It is the second longest expansion in American history, surpassing the post-War boom (1949-1956) and second only to the Reagan/Bush/Clinton expansion of 1987-2000. The original Reagan boom lasted 5 years from 1982-1987 before the Black Monday crash in 1987.

Normally, expansions are characterized by a market-changing event. The 1982-1987 stock market climb came from Reagan tax cuts and massive economic deregulation. The 1987-2000 stock market was driven primarily from advances in computer technology and the internet which aided business efficiency. The 1949-1956 expansion was based upon pent up demand from the end of the war and the global rebuilding effort.

No such reason exists for our current stock market growth. No new drug. No tax reduction. No advancement in business efficiency. No pent up demand exists because of heavy personal and government debt loads. Market gains have been created artificially – easy money from the Fed and zero interest rate policies have allowed banks to drive up, and keep up the paper value of stocks during the Obama era.

The “Big Boys” know … artificial growth cannot last forever.

I. The Big Boys are Betting Against the Market … What Do They See?

1. The bond market is broken. Famed investor Paul Singer of Elliott Management has warned pricing in the bond market is “completely broken.” He stated in his most recent letter for his clients that the Bank of Japan and the European Central Bank are nearing a point where they can no longer monetize their own bonds. Meaning they could not even buy bonds from themselves – and the market reaction will be “severe.” In conclusion, he states, “We are living in the biggest bond bubble in world history,” and the “global bond market is broken.”

2. There is an information deficit for traders. Carl Icahn was doom and gloom in his most recent client letter as well, and he joined Singer in his belief that the Fed’s interventions with zero interest-rate policies (ZIRP) and easy money has caused “substantial harm to the pricing mechanism” of the free market. If money is being debased for 7 straight years, it is hard to put a value on assets. Traders do not have information that is not affected by central bank policy. Singer’s gloomy conclusion is “the ultimate breakdown (or series of breakdowns) of the market from this environment is likely to be surprising, sudden, intense, and large.”

3. It’s time for safety … right now. George Soros made two significant gold purchases in the last few weeks, fueling speculation he was bearish on the American economy. It certainly was not an optimistic investment in stocks. His protégé Stanley Druckenmiller joined the “doom and gloom” parade by emphasizing at the Sohn Conference: “… the Fed’s monetary policy facilitated unproductive use of leverage by companies involved in share buybacks and mergers, rather than capital expenditure. Worse yet, China’s credit bubble had caused a drop in the nation’s nominal gross domestic product (GDP) growth from 15 to 5%, threatening global economic growth … investors should seriously consider gold investments.” (The “Sohn Conference” is named for the “Ira Sohn Investment Conference” which is held in New York City annually).

II. Reasons to Remain Optimistic – Maybe the Big Boys Are Wrong?

1. Low U.S. unemployment rate.We have argued many times regarding how unemployment reports do not accurately reflect the current state of employment in the country. However, the macro picture regarding hiring and wages is better than our global competitors. So while it is not up to American standards, we are certainly doing better by comparison.

2. Economic growth remains positive.While the government’s easy money policies have artificially inflated the value of paper assets, that number is part of the measurement of economic growth. Stock market appreciation, combined with the fact there is no recessionary environment, has allowed for growth to continue upward, however anemic.

3. Leading indicators remain positive.Some, but not all, of the leading economic reports suggest we remain in an economic environment that would support stock market appreciation. Orders for durable goods are up after two abysmal quarters, new and used home sales remain robust, and the drop in manufacturing numbers has stopped and has now stabilized. Everything is not rosy, everything is not great. But there is enough sunlight to suggest the good times in the stock market could keep going.

4. You can remain optimistic, AND cover your six! For the smart investors, there are products that allow you to remain optimistic about the market, capture the bulk of the gains in the market, and, if you are a really smart investor, avoid the fees. Do you know how to do this?

Contact a Ty J. Young Inc. advisor to learn how you can go up with the stock market, and not suffer from any of the losses. The time is now – you do not have to lose money in the next market downturn. Call 877-912-1919.

Despite specific data points which can support staying in the market, it is certain many of the real big boys – the market makers – are signaling to “get out.” That’s not predicting the world will end – it did not end in 2008 – but a lot of people in 2008 lost over half of their retirement savings. Most people lost at least 30% because they did not catch the falling knife. Can you afford to go backward again?

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“Stocks at an All-Time High … It’s a Party like 1999!”
Ty J. Young Editorial

Last week, all major indices hit an all-time high in the same week for the first time since 1999.

Sound familiar?

1999 was the end of the millennium, the start of a new one, and fondly remembered for the post-Cold War American unipolar moment. The new Star Wars Trilogy returned to theaters. The Matrix and Fight Club would become classics. Britney Spears and the Backstreet Boys ruled popular music. The Sopranos and the West Wing dominated TV ratings.

There were some ominous moments in 1999 as well. The country was still in shock from what we learned during the impeachment proceedings of Bill Clinton. War erupted in Kosovo and the U.S. once again led the NATO air campaign. We were aware of, but doing nothing about Osama bin Laden. And a mysterious computer glitch, known as Y2K, threatened to bring down all of civilization!

Y2K was expected to be Armageddon, but when the markets hit all-time highs in the same week 17 years ago, it would instead serve as the indication of another end-of-world scenario we were already in the middle of: the bursting of the dotcom bubble!

The bubble burst over a long period of time, generally considered between 1999 and 2000. The NASDAQ index peaked on March 10, 2000, at 5048, nearly double over the prior year. At the peak, lots of companies began placing “sell” orders, including tech stocks like Dell and Cisco which helped fuel the bubble. The market, naturally, panicked! By April, the market lost 10% of its value and remained in decline for the remainder of the year. Investors stopped investing in the dot.com companies. These companies were virtually worthless overnight. At the end of 2001 (to include the damage done by the attacks of 9/11), a majority of publicly traded dotcom companies folded, and trillions of dollars of investment capital vanished. It was a disaster.

Did you survive the dotcom bubble? How long did it take to get back? Was is not just a few short years later and we were recovering again from the 2008-09 banking collapse and recession? The week the indices hit all-time highs together has happened again. Does this mean we are in another 1999 moment?

I. Top 3 Reasons this Market will Keep Going Up:

1. Investors are desperate to find yield somewhere, anywhere.With Zero Interest rate policies (ZIRP) in the U.S. and negative interest rates in Japan and Europe (NIRP), investors seeking yield believe they can only find it in the stock market. Therefore, they will keep putting their money into Wall Street.

2. Government Policy will ensure continued easy money. Whether it is monetary or fiscal policy, the Fed’s willingness to enact any policy to ensure the market keeps going up has been shown.

3. We are the pig with the most lipstick. Where else can you put your money? China? EU? Emerging Markets? ALL have low or slow growth environments which have kept their markets restrained. The best place to find market return, as anemic as it may be, is in the U.S.II. Top 3 Reasons this Market will Finally Reverse Course:

1. The technical’s suggest “sell.” There is always data which supports both sides of a theory. Some data is stronger than other data, and some not as predictable in hindsight. Wall Street brokers follow lots of technical analysis, and two are screaming correction: Earnings per share (EPS) and Valuations. Corporate valuations have not had a standard deviation this high, for this long, since … 1999. To bring it back to the historic average will require a nasty bear market. As Steve Reitmeister from Zacks Investment Research was quoted recently, “This is pretty much what happened after the tech bubble of 1999 and how the next decade gave virtually no gains to stock investors thanks to two nasty bear markets.”

2. What goes up must come down.For some time now, the market has not had a technical, historic, or free market-based reason to keep going up. Given how low the volume of shares that has been trading, it has been said the market is artificially inflated … held up by TARP (Trouble Asset Relief Program) banks so politicians would not pay a price for low growth and no returns. Many 401(k)s and stock market portfolios have benefited, no doubt. But there will be an end game, whether it is political or market forces that lead to a correction. You cannot have a stock market appreciate in value indefinitely.

3. More people holding cash. Despite the daily uptick in the stock market, more people are holding cash than at any time since November 2011 – right after the 9/11 attacks. As stated above, market movement has been propelled by government policy, bank traders, and not the arrival of promised GDP growth and an expanding economy. As Alastair Winter mentioned on CNBC this week, “Holding cash is surely a bad sign for investor confidence but it is perfectly rational. Equity and bond prices are largely being propelled by central banks – both directly through their loose monetary policies and indirectly by market expectations that those policies will be maintained indefinitely.” But as the investor knows all too well, nothing lasts forever.

Everyone remembers the Prince song that we would “(Party like it’s) 1999.” It was a great year to end a great decade. But the money issues of 1999 were the indication for a stock market collapse less than a year later. Those same events are happening again – is your money safe from the coming storm? Markets cannot go up forever. There is an “end game.” Make sure you have yours.

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